Struggle in Housing Market Is Expected to Persist All Year

By THE ASSOCIATED PRESS

Published: July 27, 2007

WASHINGTON, July 26 (AP) -- Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The median home price also fell.

The Commerce Department reported Thursday that sales of new single-family homes dropped by 6.6 percent last month, to a seasonally adjusted annual rate of 834,000 units. The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January. Sales are now 22.3 percent below the level of a year ago.

The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago. It was the biggest year-over-year price drop since a 6.5 percent fall in April. The median price is the point where half the homes sold for more and half for less.

A report Wednesday showed that sales of existing homes dropped by 3.8 percent in June, to a five-year low. The weakness reflects spreading troubles in the mortgage market as more borrowers default on their loans, putting those homes back on an already glutted market. In addition, banks and other lenders are tightening their standards, making it harder for prospective buyers to qualify for loans.

By region of the country, sales of new homes fell 27.1 percent in the Northeast, 22.5 percent in the West and 17.1 percent in the Midwest. Only the South saw an increase in sales, a gain of 7.6 percent.

Economists say they believe the weakness in housing could linger through the rest of this year, until a huge overhang of unsold homes is worked down. For June, the inventory of unsold new homes was unchanged at 537,000 units.

In other economic news, the Commerce Department said that orders for big-ticket manufactured products increased 1.4 percent last month, the best showing since a 5.1 percent increase in March. Orders declined 2.3 percent in May.

The June strength in durable goods orders was concentrated in orders for commercial airplanes, which soared 28.7 percent, reflecting strong demand for Boeing aircraft. Aircraft orders, which are extremely volatile from month to month, fell 21 percent in May.

Meanwhile, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits fell to 301,000 last week, a drop of 2,000 from the previous week. Economists had been expecting a slight rise.

Economists say they believe that the economy regained momentum in the spring after a lackluster start to the year. Economic growth slowed to a dismal annual rate of 0.7 percent from January through March, the weakest showing in more than four years.

The government will report on April-June growth on Friday, and many analysts say they believe the report will show a solid rebound, to growth of around 3.2 percent, despite the housing industry troubles.

The report on orders for durable goods showed that many sectors other than aircraft declined last month.

Overall transportation orders were up 6.1 percent, but that reflected the 28.7 percent jump in demand for commercial airliners and a 9.9 percent rise in orders for military aircraft. Orders for autos were down 1.4 percent last month.

Outside of transportation, orders fell by 0.5 percent, reflecting weakness in a number of categories. That was the second consecutive drop in orders excluding transportation.

Orders for nonmilitary capital goods excluding aircraft, a category that is considered a good proxy for business investment, fell by 0.7 percent last week after an even bigger 1.5 percent decline in May.

Other sectors showing weakness were primary metals, including steel, which dropped by 3.6 percent, and computers and electronic products, down 4.6 percent.

Photo: New-home sales were down by 6.6 percent last month, the largest percentage decline since January. (Photograph by Douglas C. Pizac/Associated Press)